“Doing Business As”
For a lot of people, their American Dream started as a hobby. What was once a “business on the side” is now a full time business – the only problem is that you do not know when it changed. When did it transition from a little business that helped make ends meet, to a “real” business with real business issues? For most, the change is gradual, and at some point they quit their “real job” to work the business full time. But what happened along the way is you, the business owner, never changed your thinking about your business.
Many times when you start a business you will go down to your local court house and file a “doing business as” form or D/B/A form. This simply tells everyone that you, Joe Davis, Individually, are now “Joe’s Dog Walking.” You are in business, you have a business name which can be used, you can take the D/B/A document to the bank and add Joe’s Dog Walking to your personal checking account, and then accept payment as Joe’s Dog Walking, you can advertise as Joe’s Dog Walking, everything about it feels like a business. In reality, what you have done is simply transform your personal name into your business name – Joe’s Dog Walking.
Now this feels like a business, you provide your services to customers, they pay you, and you feel like you have made some quick money but there is another issue. That issue is liability.
In America, anyone can sue anybody over anything for the cost of the filing fee at the courthouse. When they sue you, they have to use your legal name. In our example, if you lost a clients purebred dog, worth $2,000.00 while on a dog walk, they would sue you for $2,000.00 and the person they would sue would be “Joe Davis D/B/A Joe’s Dog Walking”. This means they have just put the individual assets of Joe Davis at risk of being lost if they win the lawsuit because a D/B/A does not give you any liability protection, and leaves your personal assets, large or small at risk.
There is a way to protect yourself. The limited liability company or LLC is like a corporation, it allows you to reduce your liability for your business and protect your personal assets.
The LLC acts all by itself, so that it does not link anything to your personal name, and any lawsuits would be required to be in the name of the LLC. So after we have formed an LLC, Joe has a company and that company is going to be called Joe’s Dog Walking, LLC. How do three little letters make so much difference? To start with, because we have formed a new company, we have disassociated any personal assets from the assets of the business. When Joe’s Dog Walking, LLC needs leashes or water bowls then the LLC uses an LLC check to purchase these items. While Joe Davis, owns the LLC, and he can receive profits from the LLC, if sued, Joe’s personal assets are never at risk of being taken by the person whose dog you lost.
So what’s the next step? If you are have a business that is a D/B/A it is time to seek legal counsel to determine if you need your own LLC to protect your assets, your family, and your business.
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